I'm a technologist, and my interests lie at the point of fusion between technology, finance and innovation. I'm Deputy Director for the "Financial Services for the Poor" initiative at the Bill & Melinda Gates Foundation. I'm the author of The Castle And The Sandbox, a book on how to innovate in conservative companies. Previously I was the co-founder of Innotribe, the initiative for collaborative innovation in the financial industry, and chief architect of SWIFTNet, SWIFT's worldwide secure network currently connecting 8,000 banks and 1,000 corporations, and servicing daily the world economy. You can find me on Twitter: copernicc, and Google+ .

The Future Of Doing Good In Banking, Inspired By Muhammad Yunus

This post is about the “Banks for a Better World” Innotribe incubator project. Innotribe have showcased it at the “Future of doing good” session at Innotribe@Sibos 2012 in Osaka, where we had the privilege of having Prof. Yunus on the panel. The event was exciting in itself, but what is even more exciting is that there is a traction to continue the project and concrete ideas about how to do so.

Banks for a better world represents a new trend in Innotribe topics, very much away from fin-tech. In essence, it is about:

Bridging traditional and social finance, a kind of “fair trade” but for financial products and services.

Connecting the unbanked – the people who are not part of the financial system because they don’t have any bank relationship or account. In many developing countries, the unbanked form the majority of the people.

Establishing a community, or movement, to influence the governments and global companies for more transparency in the way they invest.

"Bypass to social impact" (by Mariela Atanassova) - bridging systems

The project is run in partnership with Ashoka (www.ashoka.org), a global organisation supporting what they call “social entrepreneurs” – people focused on driving social change by using entrepreneurial principles.

Through our contacts with Ashoka and other inputs from the Innotribe network, it became apparent that:

There is a major gap between the domain of traditional finance, very well known in the developed countries by everyone, and social finance – very much unknown in developing countries with notable exceptions such as Grameen bank and their micro-credits.

There is a lack of adequate financial instruments to support small SMEs and social enterprise. This was equally valid, to my surprise, in developed countries as well as in developing ones.

There is a major issue of financial inclusion, illustrated by the situation in India where pretty much the entire population has, or has access to, a mobile phone, but only a third of the eligible population has a bank account. The so-called “unbanked” are thus isolated from traditional financial instruments, giving rise to many initiatives and instruments to serve that market with more or less good intentions.

Bridges between the social and traditional finance can only be established through a collaborative efforts, as any single bank wouldn’t have the power to resolve all these problems on their own.

The Banks for a Better World project, under the leadership of Martine De Weirdt in the Innotribe team, explored in the past year several angles on how to tackle these issues, and also tested the appetite of the financial community to act.

Where does it stand?

The idea is to create sustainable products, services, companies that solve problems related to “social” finance by bridging it to “traditional” finance. I want to emphasise this – it is neither about Corporate Social Responsibility (CSR) nor charity.

The person who explains this most eloquently is Prof. Muhammad Yunus.

Prof. Yunus relaxing near the Innotribe tent at Innotribe@Sibos 2012

Martine first met Yunus at the World Economic Forum in Davos 2012, where Innotribe was hosting a private session on the Banks for a Better World subject. He was interested by the Innotribe approach of a collaborative innovation, and eventually agreed to join the Banks for a Better World session at Innotribe@Sibos 2012 and also deliver a speech for the Sibos closing plenary. He says that “charity money never comes back” – giving money doesn’t guarantee a sustainable improvement of the persons or entities receiving that money. He told me about a recent trip to Haiti, where he observed that despite massive amounts of donations and charity given since the catastrophic earthquake, the situation on the ground has improved only marginally. His solution is the “social entreprise” – an entreprise like any other, except that the dividends are re-invested into the company. So, the mission of such social entreprises are to solve problems, and not to make money. This makes a big difference, and he has more than 60 social entreprises behind him to prove the point – most notably the Grameen Bank and Grameen Danone Foods. The focus is on long term sustainability – the initial money is invested into the entreprise not as charity, but as a means to get the social entreprise off the ground and hopefully able to sustain itself.

Based on all of this, the following idea emerged at Innotribe@Sibos 2012: Banks for a Better World becomes a collaborative project whose goal is to create a number of social entreprises focused on bridging the traditional and social finance worlds. The project would be co-ordinated by Innotribe, as follows naturally from the collaborative innovation mission it has. The following ingredients are needed – funding, agenda setting, idea generation and, finally, creation of the social entreprises.

The banking community would provide the funding, based on a voluntary basis (banks willing to participate) or a community-wide mechanism. Two ideas have been mentioned for the latter, involving SWIFT -

Rounding the value of the payment instructions transmitted on the SWIFT network to the upper currency unit, and making the difference available to Banks for a Better World (e.g. an amount of 143,36 EUR is rounded to 144 EUR and 0,64 EUR is kept)

Making the SWIFT refund available for Banks for a Better World. SWIFT being a co-operative society (thus not for profit), SWIFT refunds its member banks each year with any surplus income made that year.

The agenda setting for Banks for a Better World – in other words, the focus of innovation – of course will depend on the way it is funded. However, it will be important to have Enablers, people with experience on the ground such as Prof. Yunus, to drive the agenda as well.

Next is actual idea generation – spot the social entrepreneurs or startups who have ideas relevant to the above agenda, engage and encourage them to step forward and enable them to create solutions and social entreprises. This sounds easy at first, but it is not – from Innotribe’s experience in the startup challenge, it does require an extensive network and work to produce quality ideas. In fact, inspired by the startup challenge, and in collaboration with Ashoka, the Banks for a Better World session gave five social startups the opportunity to pitch their ideas to Prof. Yunus and the other panelists. These ideas were in the following domains:

Providing young people in developing countries with financial education and bank accounts – tomorrow’s future customers

Developing mobile banking to reach the word’s unbanked communities

Building partnerships between specialist community lenders and mainstream banks to improve access to finance

Providing working capital funding to high growth SMEs and social impact organizations

Issuing municipal impact bonds to finance high impact social projects

Another interesting idea came from Julius Akinyemi, a panelist in the same session. Julius is the initiator of a project called Unleashing the Wealth of Nations and a resident entrepreneur at the MIT Media Lab in Cambridge, Massachusetts. Akinyemi is proposing leveraging new technology – such as the Digital Asset Grid - to create a local and nationwide “eRegistry” of all assets such as land, real property, farms and even cows and goats, that could be converted into a globally-understood and accepted common currency.

Finally, when the ideas are on the table, it is necessary to empower and enable the ideas owners to progress these ideas by creating a social entreprise focused on the subject. We can all draw heavily on Prof. Yunus extensive experience and advice in this domain.

I’m curious about where this goes, and very much looking forward to it. For sure the Innotribe team and I were tremendously encouraged by Prof. Yunus’ incredible faith and drive.

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